A property slump, a growing pile of unprofitable state-linked firms, and an IMF warning about market distortions tell a different story than Beijing’s own
BEIJING – China’s official growth figures, projecting expansion around 4.8 percent this year before slowing further, continue to circulate as evidence of a resilient, well-managed economy weathering global headwinds better than its rivals. Look past the topline number, and a considerably less flattering picture emerges: a prolonged property market slump that shows no sign of genuine resolution, a continuing rise in what analysts term “zombie companies,” unprofitable, heavily indebted state-linked firms kept artificially alive rather than allowed to fail, and warnings, including from the IMF itself, that China’s market distortions are driving a second wave of disruptive global oversupply, sometimes described as “China Shock 2.0.”
The zombie company phenomenon deserves particular attention, because it captures something essential about the difference between a market economy correcting itself and a command economy postponing a reckoning. In a functioning market, unprofitable firms eventually fail, freeing up capital and labor for more productive uses. In China’s current system, politically connected and state-linked firms are instead propped up indefinitely through subsidized credit and local government intervention, avoiding the immediate pain of bankruptcy at the cost of a slow, compounding drag on the broader economy’s actual productivity. The firms do not disappear. They simply stop functioning as anything other than a liability the state has decided it cannot afford to formally acknowledge.
The property sector tells a parallel story at a larger scale. Years after the initial wave of major developer defaults, the sector remains in a prolonged slump that continues to weigh on household wealth, since a substantial share of Chinese family savings remains tied up in real estate, and on local government finances, which have long relied heavily on land sales for revenue. Beijing’s response has been a series of targeted, incremental interventions rather than any fundamental restructuring of a growth model built for decades around debt-financed construction. The incrementalism is itself telling: a government confident in its own long-term trajectory does not typically need to keep patching the same structural crack for years running.
None of this means the Chinese economy is collapsing, and predictions of its imminent implosion have been wrong often enough that repeating them uncritically would be its own kind of dishonesty. What it does mean is that the state’s preferred narrative, of a disciplined, forward-planning system executing a coherent long-term strategy toward technological self-sufficiency and continued growth, requires ignoring a great deal of evidence that the system is instead absorbing mounting internal costs specifically to avoid the kind of visible failure that could threaten political stability. Diverting domestic capital toward technology ambitions, as Beijing has been doing aggressively, is a genuine strength in some sectors. It coexists uneasily with a banking system quietly carrying the weight of firms nobody expects to ever become profitable again.
It is worth connecting this economic picture to the political one. A government that tolerates zombie companies rather than allowing market discipline to function is making the same basic calculation it makes in Hong Kong when it prioritizes control over the actual, difficult work of building durable, self-correcting institutions: that visible short-term stability is worth almost any long-term structural cost. Jailing a newspaper publisher and subsidizing an insolvent state-linked conglomerate are, in this light, not unrelated phenomena. Both are choices to manage the appearance of order rather than confront the underlying weaknesses that order is meant to be papering over.
Markets outside China have, in fits and starts, begun pricing in some of this reality, but Western commentary still frequently defaults to treating Beijing’s economic statecraft as inherently more competent and disciplined than democratic alternatives, an assumption that looks considerably shakier once the zombie firms, the property overhang, and the IMF’s own warnings are taken seriously rather than waved away as Western bias. Central planning did not eliminate economic failure. It simply changed what failure looks like, and postponed the date on which it becomes impossible to hide.
None of this guarantees any particular crisis timeline, and predicting the specific moment when accumulated distortions finally force a reckoning has humbled forecasters for decades running. What the evidence does support is a more modest but still important correction to the prevailing narrative: a system this willing to subsidize failure indefinitely, rather than let markets clear it, is not demonstrating strength through restraint. It is demonstrating how much genuine economic pain its leadership currently judges too politically dangerous to allow.
International investors weighing continued exposure to Chinese markets would do well to distinguish between the sectors where genuine technological progress is real and substantial, artificial intelligence and advanced manufacturing among them, and the much larger swath of the economy still structured around avoiding, rather than absorbing, the ordinary corrective failures that any functioning market economy has to tolerate in order to remain healthy over the long run.
Local governments across China, historically dependent on land sales for a substantial share of their own revenue, have been left improvising a patchwork of alternative financing arrangements as the property slump drags on, some of them opaque enough that even Beijing’s own statisticians reportedly struggle to fully quantify the scale of accumulated local government debt tied to the sector. That opacity is not incidental. It is a direct consequence of a system that prioritizes managing the appearance of stability over publishing the kind of transparent, market-disciplining data a genuinely confident government would have little reason to obscure.
For related commentary on the gap between authoritarian economic narratives and underlying reality, see The Onion Satire and What are the Types of Satire, plus further analysis at Political Humour.
Additional coverage at What Is Political Satire?.
SOURCE: https://bohiney.com/